People will often tell you to buy outright instead of borrowing money to pay it off later, but is this always the case? Are there any situations where this isn’t true? When it comes to financing a car the answer can be yes. Here are some of the top reasons why it’s often better to finance a car than buy it outright.
Used Cars Are Almost Always A Risk
When you buy a used car, you can never be 100% sure you know what you’re getting. There’s always the risk that something was on the verge of wearing out and will suddenly decide to break down once you buy it. It can be hard to tell what hidden repair costs might need to be done. That’s not to say all used cars are less than five kilometers away from breaking down. That being said, the repair costs of buying a used vehicle can easily add an extra financial burden you might not have seen coming.
With a new car comes (almost) none of that risk. You get much more peace of mind with that extra dollar tag at the end of the day. That’s not to say your new car won’t need repairs done (and it’s always a good idea to check out the car model you’re interested in for reliability), but you can walk drive away knowing the car you bought wasn’t recently used for doing donuts every night in a 7-11 parking lot, or was the victim of several attempts to jump the old rickety bridge (Dukes of Hazzard style) on the outskirts of town.
The New Car Upgrade Makes It Worthwhile
One of the best and most common reasons to finance your car is to get more car for your money.
Sure, you can get a used car for $5,000 without any more payments, but you also get the baggage of more kilometers on the car, less safety features, and worn down seats among other things. Change that $5k into a down payment and you’re looking at a lot more advantages like more safety features and upgrades. With those “new and improved” features, and less mileage, you can feel safer, more comfortable, and get that much more longevity out of your car.
You Can Improve Your Credit Score
Like any loan, managing it responsibly can help you build a foundation for a great credit score or improve an existing score with your bank. Doing so means making plans as “future you” a lot easier since you can get approved for other loans, financial products (like credit cards), and can even get lower interest rates.
Low Interest Rates
This is definitely one of the best reasons to finance a car: you can take advantage of interest rates when they are especially low. If it comes time to buy a car and you are given the option to finance a car at a zero percent interest rate, you should take them up on it. In this situation the bank or car company is giving you the option to buy the car with no loss to you for spreading out your payments instead of paying them in full up front.
Financing a car is still a worthwhile endeavor for interest rates as high as one, two, three, or four percent. For example, if your car is $25,000 and you put a down payment for $4,000 on an interest rate of 2% on $21,000 over the next four years, your monthly interest payments owed are only $456. You can use the money you’re saving on buying a car outright to use for other parts of your life instead of working your bank account up from a low number.
Easy And Seamless Process
The last thing you want is to spend hours waiting for someone to stamp APPROVED on your loan. Fortunately, car loans can generally get you back out the door and enjoying your new wheels as quickly as possible.
Unlike some loans, car loans are a much more streamlined process. Often the credit application can be done at the dealership, online, or even over the phone. Some people have even seen approvals within seconds of submission. The even better news is, even with bad credit, your loan can still potentially be approved depending on the dealership. This means even if you’ve been dealt a bad hand, you can still be mobile, enabling you get to work, family functions, etc.
Special Benefits
When financing a car you can sometimes even get added perks. This generally only requires you to get a loan from the same company you bought your car from. For example they could throw in a free oil change, or a full vehicle inspection before you drive the car home. That’s added value you can save money on.
Takeaway
Ultimately it comes down to whether it makes financial sense for you to finance a new car. No one knows your financial situation like you do, and maybe it is better for you to just buy a used car. That being said, next time you’re thinking about buying some new wheels, and the car body bits attached to those wheels, consider financing a car, you might be surprised at your savings.